The parade theme Social Inclusion offers the deeper, spiritual answer to this question. MLK Day celebrates diversity within our great city represented by a multicultural diaspora. People from all demographics have opportunities to freely and comfortably indulge in expression, ideas, and tastes of their choice. These United States birth the promise of inalienable rights to every individual. Americans have concepts and values about what is important and what makes us feel complete. Making our own choice is very important because it fosters meaning in our life. Why not have choices celebrating the legacy of Dr. Martin Luther King? It is a National Holiday encompassing the whole of humanity.
The other easy answer is tactical and logistical in nature. A single parade with all the participants would easily exceed any reasonable, comfortable time for such an event. It would create added safety challenges, traffic and parking issues, and tax the viewing audience.